Using a credit card wisely gives you the opportunity to rack up some serious rewards that translate to free money and other perks. And because there are a number of credit cards to choose from — many with flexible rewards programs — you’re in control of how you get rewarded for your everyday purchases.
Want a free trip to Hawaii? You might be able to accomplish that with a travel card’s sign-up bonus. Want free dough to spend on groceries? Great idea — a cashback credit card could get you more than you could possibly eat.
When looking purely at the value of rewards per dollar spent, travel rewards cards often provide more generous sign-up bonuses and a greater return on your everyday spending — but that doesn’t mean travel rewards cards are an inherently better choice. Cashback credit cards offer greater simplicity in redemption, and if you’d rather save money than travel for free, a cashback credit card could be a better choice for you.
Why people like cashback credit cards
With a cashback credit card, you’ll typically get anywhere from $0.01 to $0.05 back for each dollar you spend. Plus, you’ll often have choices for how you receive your money. For example, you could choose a statement credit, pick out a gift card, or receive a check in the mail.
Cashback cards usually have low thresholds for redemption, and your rewards are often very liquid, which means you can access cash when you need it.
One example of a card that has both flexible and accessible rewards is the Capital One® Quicksilver® Cash Rewards Credit Card. There’s no minimum threshold for redemption, your rewards never expire as long as your account is open, and you can choose to get cash, apply your rewards towards a recent purchase, or buy gift cards to your favorite stores.
Typical sign-up bonuses on cashback cards range from $100 to $200. For example, the Bank of America Cash Rewards Credit Card has a $200 sign-up bonus, plus you’ll get 3% cash back on the category of your choice; 2% cash back at grocery stores and wholesale clubs (on the first $2,500 spent each quarter in the 2% and 3% categories combined); and 1% cash back on all other purchases.
Many cashback credit cards don’t have annual fees, but one exception is the Blue Cash Preferred Card from American Express. It has a $95 annual fee, but you’ll get 6% cash back at U.S. supermarkets (for first $6,000 per year) and on U.S. streaming services, 3% at U.S. gas stations and on eligible transit, and 1% on other purchases.
Since the no-fee version — the Blue Cash Everyday Card — only offers Up to 3% cash back, the Blue Cash Preferred card could be a good deal for families who spend enough each year to earn more than $95 in cash back.
Cashback rewards credit cards are a good idea for those who want to quickly access extra cash to reduce overall spending. They work well for shoppers who don’t travel often and want the flexibility to use their rewards for other things.
If trying to maximize your miles sounds like too much effort and you’re looking for a straightforward way to redeem your rewards, you’ll probably be better off with a cashback card than a travel rewards card.
On the other hand, if you travel frequently and want to get more value in rewards per dollar spent, consider a travel rewards credit card.
The benefits of travel rewards cards
With most travel rewards cards, you’ll get at least one point (or mile) for every dollar you spend using your card. Most airline-branded credit cards only let you redeem points within that airline’s frequent flyer program. But these cards may also offer perks such as priority boarding or free bags, so if you’re loyal to a certain airline, looking into its branded rewards card is definitely a good idea.
Other travel cards have highly flexible rewards that you can redeem for cash back, use for purchases through the issuer’s travel portal, or even transfer to airline loyalty programs.
With a premium card, such as the Chase Sapphire Reserve, your points go even further when you use them for travel purchases; the Sapphire Reserve’s points are worth 50% more through the Ultimate Rewards travel portal than if you were to just get cash back.
And like many other travel rewards cards, the Chase Sapphire Reserve also offers a tremendous sign-up bonus, with the chance to earn 50,000 points after spending $4,000 on purchases in the first 3 months. However, all this value comes with an annual fee of $550.
But even travel rewards cards without annual fees typically may have more impressive sign-up bonuses than cashback cards. Take, for example, the Wells Fargo Propel American Express Card: You can earn 20,000 points when you spend $1,000 within the first 3 months. That’s equal to hundreds of dollars in cash and can also be used toward travel.
Annual fees on travel rewards cards range from $0 to more than $500. Generally speaking, you can earn better rewards and access more perks with more expensive cards.
It may sound like a no-brainer, but travel rewards cards are best for people who want to travel frequently. Premium cards in particular are good for people who spend a lot on travel each year and can use added perks, such as access to airport lounges or credits toward TSA PreCheck fees.
And since rewards redemptions take a little more research to get the best value, travel rewards cards are good for people who don’t mind putting some effort into getting the most bang for their buck.
Cash back vs. miles: How to choose
When deciding between a cashback credit card and a travel rewards card, it’s important to think carefully about how you’ll use your card and how you prefer to redeem your points. Ask yourself the following questions:
- How often will I travel? If you travel a few times a year or more, consider a travel rewards credit card.
- Where will I travel? Points can stretch further on more expensive flights, so a travel rewards card is a particularly good choice for someone traveling internationally. Plus, many travel cards offer no foreign transaction fees, which can save you even more if you travel abroad frequently.
- Am I loyal to one airline? Deciding whether you’ll stick with one airline or shop around for each flight will help you narrow down your card options.
- Do I want to get more value or save more money? If you’re looking at your rewards as a money-saving strategy, consider a cashback card. If you’d like to get complimentary perks and discounted or free trips, go with a travel rewards card.
- How much time do I want to spend monitoring and redeeming points? If you’re looking for simple and straightforward redemption options, a cashback card might be best. If you’re willing to put in the effort to maximize the value of your points, consider a travel rewards card.
If you’re new to credit card rewards, you’re in for a treat no matter which type of card you choose. Just remember to do your research and consider your needs when choosing the right credit card for you.
#1 Premium Travel Credit Card
- 50,000 point sign-up bonus
- 10X points on select streaming services (up to $1,500) from July 1, 2020 to September 30, 2020
- 5X points with Instacart (up to $3,000), and at gas stations (up to $1,500) from July 1, 2020 to September 30, 2020
- 3X points on travel and at restaurants
- $60 annual DoorDash credit in 2020 and 2021
- Priority Pass airport lounge access